Sell Orient Cement; target of Rs 237: ICICI Securities

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26 Aug, 2025 12:21

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ORCNMT chose to protect margins over chasing volumes at unremunerative prices (despite weak demand in Q1FY25 impacted by heatwave and general elections). EBITDA/t rose >13% YoY (down 17% QoQ) to INR 708 as volume plunged 15% YoY (down 21% QoQ) and realisation stood flat QoQ (down 1% YoY). On cost front, while variable cost/t eased 1% QoQ (down 7% YoY), negative operating leverage (impact of weak volumes on fixed cost/t) led to overall cost/t rising 3.3% QoQ (down just 3% YoY). EBITDA at INR 960mn slipped 3% YoY (down a huge 35% QoQ), being 17% below estimates. Factoring in management guidance of weak volume and pricing persisting in Q2FY25 as well, we chop FY25E EBITDA by 14%. While our optimism leads us to retain FY26E EBITDA, there looms a risk should prices remain stressed.

Leading by example (for cement industry), Orient Cement (ORCMNT) prioritised value over volume in Q1FY25. While volume plunged 15% YoY, realisation stood flat QoQ. Ergo (despite only marginal respite from costs), EBITDA drop was contained to 3% fall YoY. That said, the underlying weakness in demand and prices in key markets of ORCMNT are forcing 14% cut to our FY25E EBITDA. Being optimistic, while we retain FY26E forecast, there certainly looms a risk should prices remain weak. Though industry commentary has stayed subdued for the past several months, recent surge in stock price is attributable to M&A buzz (Link 1; Link 2) which is highly speculative and beyond the scope of our fundamental analysis. With current EV/t being broadly at par with replacement cost, we downgrade ORCMNT to SELL with revised TP of INR 237 (Hold, INR 220 earlier), valuing it at an unchanged 8x FY26E EV/EBITDA.

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